Fuel-Efficient Vehicles Pose Challenge to Consumption Targets

WASHINGTON—U.S. regulators said they would propose for the first time lowering the mandated consumption of alternative motor fuels, a reversal in policy that puts the powerful ethanol industry on the defense.

The move could shrink demand for alternative fuels whose use is required by the U.S. mandate. It also could make it easier for oil refiners to meet the rules, depending on how the Environmental Protection Agency handles the...